The Pound to Euro (GBP/EUR) exchange rate dipped to 8-week lows at 1.1430 last week amid political stresses while rallies have faded quickly amid weaker UK economic data with the pair trading around 1.1445.
Lloyds sees scope for consolidation and sideways trading in the near term, but expects there will be strong GBP/EUR selling interest on any rallies to the 1.1560 area. It also considers any break below the 1.1430/40 area likely to trigger renewed selling with potential losses to at least 1.1360.
The bank noted important elements of weakness in the latest UK labour-market data. The unemployment rate hit 5.2%, the joint highest reading since the end of 2020. Wages growth also slowed to the weakest level since November 2020 which suggests significantly weaker conditions.
Lloyds expects that some hawkish members within the Bank of England will still be wary over underlying inflation trends, but noted that markets have now fully priced in two rate cuts for 2026 which has undermined the Pound.
The bank also maintains a general positive stance towards the Euro and EUR/USD which will tend to pull GBP/EUR lower.
